Morgan Stanley may hand creditors $2.4 billion hotels: WSJ

By IBT Staff Reporter On 02/17/10 AT 6:32 AM

Morgan Stanley may hand over to creditors its $2.4 billion investment in a chain of Japanese hotels when the debt becomes due in April, the Wall Street Journal said on Wednesday, citing people familiar with the matter.

Morgan Stanley acquired the chain of 13 hotels from All Nippon Airways <9202.T> in 2007, in what was then the biggest hotel transaction in Asia. Since then, property prices worldwide have dropped sharply, hit by the global financial crisis.

Two of the main lenders in the purchase, Citigroup Inc and Shinsei Bank <8303.T>, want Morgan Stanley to put more equity into the property, for more security against declining prices, the paper said.

So far Morgan Stanley has been reluctant to do that, the paper said.

Officials for Morgan Stanley, Citigroup and Shinsei all declined to comment.

Another lender, Singapore sovereign wealth fund GIC , is interested in taking over the hotels from Morgan Stanley and is currently in discussions with the other lenders, the paper said, citing one person.

An official for GIC declined to comment.

Japan's property market became highly leveraged in recent years, with overseas investors such as Morgan Stanley and Goldman Sachs scoring a series of big deals.

But foreign players were forced to pull back after the global credit crisis, leaving behind a growing pile of distressed property, such as failed developments, companies unable to refinance loans and bankrupt developers.

Japan had $23.8 billion worth of distressed assets in the fourth quarter of 2009, more than double the $9.5 billion in the same period a year earlier, according to data from Real Capital Analytics.

Shinsei Bank, the midsize lender about one-third owned by U.S. buyout firm JC Flowers and Co, warned investors this month it may need to book additional reserves and writedowns related to its real-estate investments.

(Reporting by Junko Fujita and Mariko Katsumura in TOKYO and Kevin Lim in SINGAPORE; Writing by David Dolan; Editing by Lincoln Feast)